CEO Stock and Option Holdings as a Determinant of Option Hedging by Gold Mining Firms

26 Pages Posted: 17 Oct 2007

See all articles by Ali Jebli

Ali Jebli

UQAM

Nabil Khoury

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG)

Marko Savor

University of Quebec in Montreal

Date Written: June 2007

Abstract

This paper seeks primarily to analyze CEO holdings of stocks and options in their firm as a determinant of the decision to hedge and the intensity of hedging with option-like securities in the gold mining industry. The findings show that CEO holdings play an important role in the choice and intensity of the use of option-like hedging instruments. In addition, results also show that the intensity of option-like instrument use for hedging is diminished when the CEO is also the chairman of the board. This original finding provides additional insight into the decision making process in this context. Moreover, our results show that when non-hedgeable quantity risk and hedgeable price risk are highly correlated, gold mining firms resort to operational hedging strategies through their production flexibility. Consistent with previous studies, our findings reveal that firm liquidity and profitability are positively related to both the use option-like instruments and the intensity of such use while cost structure and debt are positively related to use intensity. But contrary to previous findings, our results show that company sales are negatively related to the intensity of using option-like hedging instruments and investment opportunities are negatively related to the intensity of such use. Finally, investment opportunities as well as the high correlation between production levels and gold prices seem to have a negative impact on the decision to use option-like hedging in the gold mining industry.

Keywords: Corporate Governance, Risk Management, Option

JEL Classification: G30

Suggested Citation

Jebli, Ali and Khoury, Nabil and Savor, Marko, CEO Stock and Option Holdings as a Determinant of Option Hedging by Gold Mining Firms (June 2007). Available at SSRN: https://ssrn.com/abstract=1022361 or http://dx.doi.org/10.2139/ssrn.1022361

Ali Jebli

UQAM ( email )

C.P. 8888
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Nabil Khoury (Contact Author)

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG) ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada
514-987-3000 x6717 (Phone)

Marko Savor

University of Quebec in Montreal ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada
514-987-3000 ext.: 8553 (Phone)

HOME PAGE: http://www.uqam.ca

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